At some point, many New Zealand investors come across a new acronym and think:
“What on earth is FIF tax – and am I about to do something wrong?”
Let’s clear it up.
The short version (for most people)
If you’re investing through a PIE fund – like most KiwiSaver funds or NZ-domiciled index funds – you usually don’t need to think about FIF tax at all.
- The fund handles the tax internally
- It’s reflected in your returns
- You don’t file anything separately
- You don’t calculate FIF yourself
That’s it. You can stop reading here.
PIE-structured index funds handle FIF tax internally – no extra paperwork, no IR3 forms, and built-in tax advantages for high income earners. And conveniently, many of New Zealand’s low-cost, diversified index funds (the evidence-based option) are available as PIEs.
So the evidence-based approach and the simple approach happen to be the same thing.
I’ve covered PIE funds and their tax benefits in more detail in a previous post.
If you’re buying overseas shares or ETFs directly then keep reading.
What FIF tax actually is
FIF stands for Foreign Investment Fund.
It’s the tax regime that applies once you own more than $50,000 NZD (based on what you paid, not current value) in foreign shares held directly, excluding most Australian shares.
Below that threshold, foreign shares are generally taxed only on the dividends you receive.
Once you cross it, the tax rules change.
The $50,000 threshold – how it works
The $50,000 threshold is based on the total cost of all your foreign shares you own, assessed on 1 April (the start of the tax year).
Importantly:
- It’s based on what you paid, not current market value
- It’s not per share or per platform – it’s the total across everything
- Once crossed, FIF applies to all your foreign shares (not just the amount over $50,000)
Key point: If you bought shares for $40,000 and they’ve grown to $80,000, you’re still under the threshold. It’s what you paid that counts, not what they’re worth now.
Example
If you:
- Bought $30,000 of US shares in 2023
- Bought another $25,000 of US shares in 2024
Then on 1 April 2025, your total cost is $55,000 – even if markets have fallen.
You’ve crossed the threshold.
Important exemption: Australian shares
Most shares in Australian companies and ASX-listed funds are exempt from FIF rules, due to a tax treaty between New Zealand and Australia.
That means they generally don’t count toward your $50,000 threshold.
So if you own:
- $40,000 in US shares
- $30,000 in Australian shares
Only the US shares count – you’re still under the threshold.
What changes once you cross the threshold?
Once FIF applies, Inland Revenue no longer taxes just dividends.
Instead, you’re taxed on an assumed annual return – even if your investments didn’t actually perform that well.
You’ll also need to file an IR3 tax return and calculate the FIF income yourself each year.
This is where FIF can feel more complex – but it’s still manageable once you understand the framework.
How FIF tax is calculated
There are two main methods.
1. Fair Dividend Rate (FDR) – the default method
- Assumes a 5% return each year
- You’re taxed on 5% of the opening market value (as at 1 April)
- This applies regardless of actual performance
So if your foreign shares were worth $100,000 on 1 April, you’re taxed as if you earned $5,000 – even if markets fell.
In strong years when returns exceed 5%, you pay tax on less than your actual gains. In down years, you might pay tax on gains you didn’t make. Over time, this tends to balance out – which is part of why the government uses this method.
Most people use FDR because it’s simpler.
2. Comparative Value (CV) – the alternative method
- Taxes you on the actual change in value, plus dividends
- Can be better in years when markets fall or return less than 5%
- Requires more record-keeping and calculations
You can choose which method to use each year, but many people default to FDR for simplicity.
The bottom line
FIF tax adds paperwork and complexity once you hold more than $50,000 in directly owned foreign shares – but it’s not a reason to avoid international investing.
Many people deliberately invest through PIE funds to keep things simple.
Others accept the extra admin in exchange for flexibility and control.
Both approaches are reasonable.
The key is understanding the trade-off – not finding a “perfect” answer.
Evidence-based investing is just one part of your overall financial picture. If you’d like a structured, evidence-based approach to improving your financial wellbeing more broadly as a New Zealand doctor, you can learn more about my CPD-endorsed Financial Resuscitation course here:
👉 https://healthywealth.nz/financial-resuscitation/
This post is for general information and education only. It is not personalised financial advice and does not take into account your individual circumstances, objectives, or needs.